Australia's RBA willing to ease, but caution needed

[NEW YORK] Australia's central bank is willing to cut interest rates again if needed, but is cautious about the likely impact on house prices and debt levels, a top policy maker said on Monday.

Speaking in New York, Reserve Bank of Australia (RBA) Governor Glenn Stevens also reiterated that the Australian dollar was "very likely" to fall further over time.

The central bank cut interest rates to a record low of 2.25 per cent in February, but it surprised many analysts by skipping further moves at its policy meetings in March and April.

"The (RBA) Board has clearly signalled a willingness to lower it even further, should that be helpful in securing sustainable economic growth," Mr Stevens told the American Australian Association.

"The Board has been proceeding with a degree of caution that is appropriate in the circumstances," he added, "It also has, I would say, a realistic assessment of how much monetary policy can be expected to achieve in supporting the adjustment the economy needs to make."

Financial markets imply around a 50-50 chance of a cut to 2 per cent at the RBA's next meeting on May 5, having lengthened the odds after a surprisingly strong jobs report out last week.

Mr Stevens noted that low rates were working to boost home building and household wealth, just as intended. Yet they were also driving house prices up at a time when Australians were already highly leveraged.

"Credit conditions are only one of several factors at work here. But credit conditions are very easy. So while the conduct of monetary policy can't allow these financial considerations to dominate the 'real economy' ones completely, nor can it simply ignore them," said Mr Stevens.

That was one reason the banking regulator in Australia had tightened home lending standards at the turn of the year, though Stevens said it was too early to judge how effective that would be in restraining property speculation.

Looking globally, Mr Stevens said regulators were concerned that investors might not be aware that liquidity had declined in world markets, which would make it harder to sell assets during times of stress.

REUTERS